Circuit Upholds End of Qui Tam Action Due to Ethics Miscues

, New York Law Journal

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A one-time general counsel who was part of a team of whistleblowers who sued his former company for violating the False Claims Act in billing Medicaid and Medicare violated New York Rules of Professional Conduct on the confidentiality of client information, a federal appeals court held Friday.

The U.S. Court of Appeals for the Second Circuit upheld the dismissal of a qui tam action brought by attorney and one-time Unilab general counsel Mark Bibi and two other former executives, holding that the "False Claims Act does not preempt state ethical rules governing the disclosure of client confidences."

The decision came in Fair Laboratory Practices Associates v. Quest Diagnostics, 11-1565-cv, where Bibi and fellow relators alleged that Unilab and its parent company, Quest, ran a "pull-through" scheme where they charged managed care organizations and independent practice associations discounted prices on lab tests to induce referrals of Medicare and Medicaid business—and then billed the Medicare and Medicaid business to the government at dramatically higher prices.

The relators charged in their False Claims Act lawsuit that this practice, begun in 1996, violated the federal Anti-Kickback statute, 42 U.S.C. §1320a-7b.

When Bibi was still general counsel in January 2000, he allegedly advised Unilab CEO Robert Whalen that, considering an advisory opinion by the Office of Inspector General at the U.S. Department of Health and Human Services, in Bibi's "personal opinion," the practice might violate the statute. Whalen allegedly told Bibi to "find a way around" the advisory opinion.

From this point, Bibi claims he was "frozen out" of giving any advice on compliance matters and was then replaced in March 2000 as general counsel.

Former Unilab CEO Andrew Baker filed the qui tam action in the Southern District and asked Bibi and former Unilab CFO Richard Michaelson to join him as relators under the federal False Claims Act.

Bibi consulted the New York Code of Professional Responsibility (now the N.Y. Rules of Professional Conduct) and the ABA's Model Rules of Professional Conduct and concluded that he could participate as a relator under certain exceptions to the attorney-client privilege. He later stated he "did not feel it was necessary" to check with the New York state bar.

Bibi proceeded to form a partnership to prosecute the suit, Fair Laboratory Practices Associates (FLPA). The FLPA partnership agreement called for Baker to receive 57 percent of any qui tam recovery, Bibi 29 percent and Michaelson 14 percent.

Unilab and Quest moved to dismiss, saying Bibi had violated both what is now N.Y. Rule 1.9(a), known as the "side-switching rule" and Rule 1.9(c) by using Unilab's confidential information.

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